Navistar to terminate labor pact

October 22, 2002|By James P. Miller, Tribune staff reporter.

Navistar International Corp., setting the stage for a possible strike by as many as 7,100 of its U.S. employees, warned that it won't extend a temporary labor contract with the United Auto Workers union beyond 12:01 a.m. Tuesday.

The nation's leading truck manufacturer will terminate labor accords covering workers at its production plants in Melrose Park, Indianapolis, and Springfield, Ohio.

On Monday, the two sides continued to try to hammer out an accord. In the absence of a contract, there appear to be three possible outcomes: Navistar might close its plants and lock out the workers; the workers may refuse to work; or they could continue working under their old pay rates.

A Navistar spokesman dismissed the first option, saying the company doesn't have any plans to lock out the workers, and adding, "We hope they come to work tomorrow."

In Detroit, a spokesman for the United Auto Workers declined to say what the workers will do when the contract lapses. "That's tomorrow," he said late Monday afternoon. "Today we're working on getting a good agreement," he said, "and I won't speculate" beyond Monday's bargaining session.

The previous contracts expired Oct. 1, but Navistar and the UAW, which have been in negotiations over a new pact since July, had agreed to extend the old contract indefinitely. Under that arrangement, either side has the right to terminate the extension by giving 24 hours' notice.

Late Sunday night, Navistar formally notified the union that it's terminating the extension.

"We regret that despite three months of intensive negotiations, including a three-week extension and involvement at the highest levels of both organizations, we have still not been able to reach an agreement," said Dan Ustian, the company's president and chief operating officer.

Analysts weren't as sanguine as Navistar about the prospects that the factories involved in the labor dispute will keep working.

"Navistar expects production in its three impacted facilities to continue, but we believe a strike by the UAW is now highly likely," Goldman Sachs analyst Joanna Shatney said in a Monday report. If there is a strike, Shatney added, Navistar has contingency plans to relocate production to alternate facilities.

The analyst said she doesn't think a short-term strike would seriously hurt the company's earnings, and noted she expects Navistar "will ultimately negotiate a contract with the UAW that allows it to produce more cost-effectively."

Similarly, Prudential Securities analyst Andrew Casey said he expects the company will see a strike "at one or all of three plants" involved because of its contract move, but nonetheless retained his "buy" recommendation on the company's shares. Given the relatively weak demand for trucks, Casey pointed out, Navistar is in a good position to absorb the effect of a strike.

Navistar recently temporarily shifted production of certain trucks from Ohio to Mexico, idling about 900 Ohio UAW members for at least a week.

The current tussle isn't the first run-in between Navistar and its unionized workers, as the company seeks to cut costs during a period of weak industry conditions. Last summer, the company squared off with the Canadian Auto Workers over terms of a new contract at its heavy-truck factory in Chatham, Ontario; when the workers walked out, Navistar sought--unsuccessfully--to bring replacement workers across the picket line.

When that hardball move failed to bear fruit, the company signed a contract with the Chatham workers on terms Navistar complained didn't provide the savings it needed. As part of that accord, Navistar said at the time that it wouldn't close the plant before June 1, 2003.

Last week, the company announced that its board of directors had voted to close the Chatham factory, and to transfer the Canadian production to a lower-cost production facility in Escobedo, Mexico.

That will erase the jobs of about 1,000 Canadian workers and end the hopes of another 1,200 Chatham workers who had been laid off because of slow demand but who had been expecting to be called back in the future.

Navistar denies that its announcement of that planned closure was timed to send a message to the U.S. autoworkers with whom it's currently in talks.

The highly cyclical truck industry has been battered by the nation's economic downturn.